How Apple disrupted its markets on a shoe-string R&D budget

“With the exception of Apple (AAPL) and perhaps Google (GOOG), big tech hasn’t delivered disruptive technology,” Stephen Rosenman writes for Seeking Alpha.

“It’s not for a lack of money,” Rosenman writes. “Some of the biggest tech names flushed boat loads of cash down a R&D toilet with little to show. Microsoft (MSFT) spent $42 billion in research and development over the last 5 years with modest results. Cisco (CSCO) piled $25 billion in a 5-year quest for innovation with questionable benefit.”

Rosenman writes, “In contrast, Apple focused its R&D efficiently, putting the rest of large tech to shame, spending a surprisingly low $10 billion over the last 10 years to revolutionize its markets. Apple gave the world the iPhone, iPad, and iPod on a shoe-string R&D budget, spending only $500 million in 2006 and $800 million in 2007. The company has allotted more money to fund innovation each year: This year Apple spent $2.4 billion on R&D. Yet, as a percentage of net income, Apple still only spends 9% on its R&D, way below other big tech names. Apple holds an enviable position that few other companies can reach: It can boost R&D easily without hurting its bottom line.”

Read more in the full article here.

15 Comments

    1. They bought Apple products from every line and gave them to their creatives for inspiration.

      Of course, it backfired because the creatives all spent their time surfing the net, watching videos, grooving to the music, reading books and playing Angry Birds.

  1. It’s definitely one of the things that stand out when looking at Apple’s income statement. It’s just amazing Apple gets so much out of their “meager” R&D budget allocation quarter after quarter, year after year. It really does put virtually every other tech company to shame.

  2. One word: NEXT

    NEXT (+ SJ) gave Apple a truly versatile, powerful, forward-thinking, 21st century OS which provides the foundation for the entire iOS universe.

    And SJ gave Apple the smarts to know which projects NOT to pursue.

    1. NEXT is the perfect example of advanced thinking on Steve Jobs end is rightly judging the general market direction.

      Steve could see the need for an OS to support easy developer programing and multiple types of networking PLUS the vision to see that processor capability would mushroom in the coming decades so UNIX could become a manageable OS for all consumer devices.

  3. Rule of thumb, or, on average:

    A well run and growing manufacturing company will budget 8% of revenue to R&D. Apple, obviously, is a well run and growing company. The others are not well managed, obviously.

    As we all know, throwing money at something is never the answer.

    1. “As we all know, throwing money at something is never the answer.”

      I beg to differ. If I’m hungry, that’s a problem. If I go to the store and buy food, problem solved. If my kid is doing poorly in math, that’s a problem. If I spend money on a tutor and her math scores go up, problem solved. If I own a pro ball team that isn’t winning, that’s a problem. If I pay big bucks for some key players that’s no guarantee we’ll win, but it’s a good start. In fact, I can think of many examples of problems that can be solved by throwing money at them and only a few that cannot.

  4. As someone who has designed products for 4 decades now, I can firmly state what every company’s 1st goal in product development and design should be.

    Companies must decide up front as early as possible what they are not going to do.

    It starts with the best efforts at understanding what direction customers might move with a new product and filters down from there to ease of use, product features and then software and hardware.

    Given infinite choices, there MUST be a method to weed the product decision down to a manageable number of choices.

  5. “Apple holds an enviable position that few other companies can reach: It can boost R&D easily without hurting its bottom line.”

    More importantly, Apple can boost its bottomline easily without spending more on R&D.

    That’s because they make products they want to use, so they don’t need to pay for focus groups and all the studies. Either they like the product they are making, or they don’t make it. Simple.

    1. They don’t use focus groups because they believe they’re contrary to the mission of making great stuff.

      “They just ensure that you don’t offend anyone, and produce bland inoffensive products” – Jonny Ive

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